Will Avaya's Emergence from Chapter 11 Come Too Late to Save It?

In a space that's innovating as quickly as UCaaS, Avaya's renewed ability to invest in emerging technology might not be able to keep up with market demand. Will partners stick around, or flee to other vendors?

Last week, the U.S. Bankruptcy Court for the Southern District of New York approved Avaya’s proposed reorganization plan, allowing for a Chapter 11 bankruptcy exit by the end of this year.

“The court’s approval of our plan is the culmination of months of hard work and extensive negotiations among our various stakeholders,” said Jim Chirico, Avaya’s president and CEO, in a statement. “In the coming weeks, Avaya will emerge from this process stronger than ever and positioned for long-term success, with the financial flexibility to create even greater value for our customers, partners and stockholders.”

But not everyone in the unified communications space has as much confidence in Avaya’s ability to rebound as Chirico. Tom Eggemeier, President of omnichannel customer experience and call center solution provider Genesys, says that the lack of resources Avaya has been able to devote to cloud-based R&D in recent years means that even when the company emerges from Chapter 11, it will still have a significant handicap in the race to create a solid channel footprint in the UCaaS market. Already, says Eggemeier, partners are fleeing Avaya and searching for a new vendor that can offer the type of cloud solutions their customers are demanding.

“It’s clear Avaya is behind in terms of innovation and delivering leading technologies, and one would have to assume that their current financial state will only compound those challenges. As a result, this is causing partners to carefully consider new vendor partnerships to best serve them in the future.”

Switching vendors may cause some temporary pain-points that longtime Avaya partners are reluctant to tackle, but Eggemeier says it will prove less painful than what will happen to their businesses if they don’t. There’s solid evidence to support this claim. Analyst firm Frost & Sullivan forecasts that hosted/cloud contact center solutions will increase from 24 percent of the total seats base in 2015 to 40 percent by 2020. Partners that have not already integrated cloud solutions into their offerings will be scrambling to do so if they hope to stay relevant in the next few years of digital transformation. In the first half of the year alone, says Eggemeier, Genesys added more than 500 customers to its cloud-based solutions business and expanded its partner base by nearly 45 percent.

Partners will be loyal to vendors as long as their offerings fulfill customer demand and there’s a clear commitment to R&D investments in next-gen solutions. But if vendors can’t rise to that challenge, partners shouldn’t hesitate for long to make a switch.

“While the financial decline of Avaya certainly has not helped, the real impetus for traditional partners switching vendors is Avaya’s lack of a commercially viable cloud offering that meets the market’s demand for a flexible, scalable omnichannel solution,” says Eggemeier. “Partners are seeking to fill the gap their customers are demanding.”

Is it a go for IPO?

When Avaya emerges from Chapter 11 as a publicly-traded company, some speculate that an IPO might be in the company’s future. Avaya’s CFA and corporate treasurer, John Sullivan, has said that the sale of Avaya’s networking business in Q3 of this year pushed the share of revenue generated by software and services above 80 percent, and that he’s hopeful that number will climb to more than 90 percent within the next couple of years. But will that come too late to position it on Wall Street as an attractive investment?

Technology is evolving so rapidly that Eggemeier doubts Avaya will be able to keep up, and that isn’t outside the realm of imagination. If Avaya is late to the cloud game, it stands to reason it will be late in adopting and building upon other emerging technologies in the UCaaS space like artificial intelligence and virtual reality. When it comes to IT, contact center and customer experience technologies are one of the areas end users have very specific demands. They may not fully understand converged infrastructure or hybrid cloud solutions, but they know they want consumer-grade communication tools within their businesses.

“To emerge successful, Avaya will need to rapidly catch up after years of underinvestment,” says Eggemeier. “However, even with a massive infusion of capital, it appears they could be too far behind now on innovation and not positioned adequately for the future to make the strides they need (and as quickly as they need to make them) in order to stay competitive.”

Times, they are a’changing

From upfront sales models morphing into recurring revenue models to large vendors such as Cisco simplifying their partner programs to the emergence of born-in-the-cloud partners such as digital agencies, the channel ecosystem is undergoing a radical change. Traditional resellers and managed service providers will have to have to change along with it. VARs and MSPs know how to sell and make money from on-prem licenses and professional services, but the cloud world brings layers of new complexity to business models. Margins from SaaS are vastly different from traditional upfront sales, a change that touches everything from compensation to billing to investments in infrastructure. This means traditional partners need to hurry to redefine their value-add, structure, pricing model, and focus of their consultancies, says Eggemeier.

“For instance, instead of a sizeable percentage of revenue coming from technical deployments as they do in the on-premises model, resellers may need to pivot their consultancy focus and revenue expectations around designing and building custom integrations with other cloud delivered services. Many will also need to expand their scope – by having the ability to offer various consumption options to customers, whether on-premises, subscription, private cloud, or multi-tenant cloud.”

At the end of the day, partners know they need to evolve. But the question is whether or not they have confidence that Avaya will enable that evolution, or if they’ll have to go shopping for another provider.